Trying to make sense of Lufax
Lot’s of confusion for me around Lufax (LU). I took my dividend in shares being under the impression the scrip price was $2.15 (1 ADR is 2 shares):
“Option 2: Elect Stock - You may elect to receive the dividend paid in new ADRs of LUFAX HLDG LTD at rate USD 1.073647 per share held on record date.”
But apparently it is actually $2.25? Did IBKR make a mistake, will I get my shares at $2.15 or did I misread the above?
Edit: I was a dumbass. What remains interesting is the call option of Ping An to buy out the Tun Kung:
“Each of Mr. Jingkui SHI and Mr. Xuelian YANG has granted an option to An Ke Technology to purchase up to 100% of his shares in Lanbang (“Lanbang Offshore Call Options”). Each shareholder of Lanbang Investment Company Limited is entitled to his voting and other rights in Lanbang Investment Company Limited prior to An Ke Technology’s exercise of the Lanbang Offshore Call Options. Lanbang has also granted an option to An Ke Technology to purchase up to 100% of its shares in Tun Kung (“Tun Kung Offshore Call Options”, together with Lanbang Offshore Call Options, the “Offshore Call Options”)”
The date for triggering this call option:
“The Call Options are exercisable concurrently, in whole or in part, during the period commencing on November 1, 2024 and ending on October 31, 2034”
Given that Tun Kung is owned by Ping An executives, I would think any offer will be done at an attractive price? Say it is done close to tangible book value, then with 865 million ADR’s outstanding after dilution of scrip dividend, that means >$10/ADR.
Now this offer would probably not be extended to public shareholders, but I can imagine it might still cause a spike in the stock price? I remember a similar thing happening with Consun pharma, where an insider sold their stake for double the market price, causing a brief spike to HK$8 (from about HK$4).
Given that LU shares now trade between 5-7.5x forward earnings, (with a possibility of another cash dividend, as $0.75/share of the $2.42/share dividend will still be sitting their offshore holding co) I wonder if it is wise to sell as soon as I receive my shares, or wait a few months to see what happens with this mandatory offer. I don’t like to own these types of stocks at more than 6-7x earnings, but there is a possibility of a surprise in earnings. Analyst estimates are likely too conservative, and earnings might get close to $700-800m already in 2025 or $.8-9/share, which would make LU still pretty cheap here. So I think I will continue to hold for a few months after receiving my shares to see how this will play out. Any feedback welcome from readers with more experience in these matters.
Disclaimer: Readers of this blog should do their own due diligence before buying or selling any of the mentioned stocks, since I have been wrong before and cannot guarantee all information in this write-up is 100% factual. I may buy or sell the above mentioned stocks at any time. Past success is no guarantee for future success. Some of the stocks mentioned might have poor liquidity, so make sure to check average daily trading volume before buying or selling anything. I am not your financial advisor.
Ping An owned 41% of LU Fax before the dividend and 57% after, because most people took cash. Because Ping An crossed over the 50% ownership level, under HK law they are required to make a general offer for all outstanding shares.
However, Ping An don't want 100% and prefer to keep Lufax as a listed company. So they made the general offer at the lowest possible price, which is the lowest price Ping An have paid in the last 12 months. Since they haven't bought any shares, this price is the price of the dividend shares; $1.127 or $2.254 per ADR.
The dividend was US$1.21 per share, so $2.42 per ADR. The reinvestment price, if you take the dividend in shares, is $1.127 per share, or $2.254 per ADR. So for every share/ADR you hold you should get 1.07 new share/ADR of you chose the scrip option.
I don't expect any further shareholding changes in the short or medium term. The share option has turned out better than cash ($2.42 in cash Vs $3.15 worth of ADR (2.94*1.07 = 3.15)).
NAV per ADR is now about $12 (rough estimate) so still about a 75% discount to NAV when business seems to be picking up. Personally, I would wait at least until the interim results at the end of August to see how the business is performing.